Understanding Common Terminology Used in the Indian Union Budget and Its Meaning:
Ever wonder what all those big words mean when grown-ups talk about the Indian Union Budget? Well, we are here to help you figure it out! It is like learning a secret code that makes sense of how the country manages its money using Union Budget.
In this blog, we will try to make things easy so that you can understand the meaning of various terms used during Budget Session. From tricky terms like Gross Domestic Product (GDP) to Zero-Based Budgeting, we will break these terms down into simple pieces so everyone, can understand what is the actual meaning of these typical economical terms.
Come along as we uncover the special words that help us understand how the country spends and saves money. Whether you are a student, a future expert, or just curious, this blog will make the Indian Union Budget easier to understand and more enjoyable to learn about. Let us get started by learning the interesting details of how our country's money works!
Table of Content:
Common Terminology Used in Indian Union Budget and Its Meaning:
Aggregate Demand: Aggregate demand is the total demand for all goods and services in the entire economy. It is like adding up all the things’ people buy and all the services they use in the country. It helps us understand how prices relate to what people are buying.
Annual Financial Statement (AF): Every year, the government must show how much money it plans to receive and spend. This is called the annual financial statement. It covers the period from April 1 to March 31 of the next year.
Appropriation Bill: An appropriation bill is like a permission slip for the government to spend money. It is a proposed law that allows the government to take money from the Consolidated Fund of India to cover its expenses.
Balance of Payments: The balance of payments is like a report card showing all the transactions (buying and selling) between our country and the rest of the world. It includes things like money, special drawing rights, and financial claims.
Balanced Budget: A balanced budget is when the government's income (revenues) is equal to its spending (expenditures). It means there is neither extra money nor a shortfall. Basically, the government is not spending more than it has.
Blue Sheet: The secret key numbers of the budget are on a super-secret blue sheet. It is the backbone of the whole budget process, and even the finance minister does not know about it until the last moment.
Budget at a Glance: This document gives a quick overview of where the government gets its money and how it plans to spend it. It includes details on taxes, expenditures (both planned and unplanned), and how resources are shared with state and union territory governments.
Budget Cycle: The budget cycle is like the life of a budget from start to finish. It involves creating the budget, getting it approved, putting it into action, checking how well it is working, and then evaluating it. It is a step-by-step process.
Budget Estimates: This is an approximate calculation of how much money the government plans to spend and earn through taxes in a year. It includes spending on different areas like infrastructure and nation-building.
Capital Budget: Capital Budget is the expected amount of money for capital-related transactions. This includes investments in shares, loans, and advances given by the Central Government to State Governments, Government companies, corporations, and others.
Central Plan Outlay: Central Plan Outlay is how the government divides its money among different parts of the economy and government ministries. It helps plan and allocate funds to different sectors.
Consolidated Fund of India: This fund was established under Article 266(1) of the Indian Constitution. The Consolidated Fund of India receives all revenues received by the government in the form of direct and indirect taxes, money borrowed, and proceeds from government loans.
This fund is used for all government spending, with the exception of things that are covered by the Contingency Fund or the Public Account. Importantly, no funds can be withdrawn from this fund without Parliament's consent.
Contingency Fund of India: This fund is for unexpected expenses approved by the President. Once Parliament approves extra funds, they need to be returned to this fund. It usually has Rs. 500 crores.
Corporate Tax: This is a direct tax on a company's profits. Companies estimate their earnings after expenses and pay the government the required tax.
Current Account Deficit (CAD): The Current Account Deficit (CAD) is the difference between the revenue earned from selling products to other countries and the amount spent on purchasing goods and services from other countries.
When the value of goods and services imported exceeds the value of those exported, the country is considered to be in deficit. The current account consists of net income, which includes interest and dividends, as well as transfers, such as foreign aid.
Customs Duty: Customs duty is the tax levied on goods as they are transported through international borders. Simply put, it is a tax charged on both the import and export of goods. The government implements this duty to boost revenues, protect domestic industries, and regulate the movement of products.
Direct Tax: An individual pays a direct tax to the government directly. A taxpayer is not allowed to transfer this liability to another company or person. Example - Income Tax, Wealth, Tax, Capital Gains Tax, Corporation Tax, Securities Transaction Tax etc.
Disinvestment: Disinvestment happens when the government sells or gets rid of any of its assets or subsidiaries. It is like the government selling off a part or all of something it owns. People also call it 'divestment' or 'divestiture.
Economic Survey: The Economic Survey highlights the country's economic trends. The Survey examines developments in agricultural and industrial production, infrastructure, imports and exports, employment, money supply, and all other economic issues that affect the budget. It is introduced in Parliament one day before the Budget for the following fiscal year.
Excess Grants: When the funds approved by Parliament after the Budget proposal are not enough, another estimate can be made and sent to Parliament for additional funds, known as Excess Grants.
Excise Duty: Excise duty is a type of tax levied on goods for manufacturing, licensing, and sale in India for our use.
Finance Bill: When the Central Government wants to introduce or change taxes, it sends the proposal to Parliament for approval in the form of a Finance Bill. This can only be presented in the Lok Sabha.
Finance Minister: The finance minister (FM) is like the money boss of the Indian government. The current Finance minister of India is Smt. Nirmala Sitharaman. It is the responsibility of the finance minister to set the government's fiscal policy.
Finance Ministers are responsible for presenting the Union Budget in Parliament each year, detailing the government's taxation and expenditure plans for the coming year.
Fiscal Deficit: Fiscal Deficit happens when the government spends more money than it earns, excluding borrowed funds. "Fiscal" means money, and "Deficit" means a shortage. So, Fiscal Deficit can be thought of as a Money Shortage for the government.
Fiscal Policy: Fiscal Policy is the government's decision on how much money to spend and how much to collect through taxes. This helps the government manage and achieve the country's economic goals.
Fiscal Year: The fiscal year, or financial year, is the 12-month period used by the government for its budget and accounting. In India, it starts on April 1st and ends on March 31st of the following (next) year.
Goods and Service Tax (GST): GST is a single tax that applies to the entire supply chain of products and services, from manufacturer to consumer. GST aims to make India a single unified market, decrease administrative difficulties, and streamline the indirect tax structure.
The Constitution (122nd Amendment) Bill was introduced across India on July 1, 2017, replacing the indirect taxes levied by the national and state governments.
Gross Domestic Product (GDP): GDP is the total value of all the goods and services produced in a country in a year. It helps us understand how well the country's economy is doing.
Halwa Ceremony: Before showing everyone the budget, there is a sweet tradition called the 'Halwa Ceremony'. They serve halwa, a sweet dish, to the people who work on the budget. It is like starting things on a sweet note.
Household Income: Household income is the total earnings of all people living together in one place. It includes money from jobs, investments, retirements, and other sources.
Incumbent Government: The Incumbent Government is the one that is currently running the show or the ruling government in a country. In India, it is the BJP right now.
Indirect Tax: An individual pays indirect taxes to the government through an intermediary. This intermediary then transfers it to the government. Example - Goods & Services Tax (GST), Customs Duty, Service Tax, Excise Duty, etc.
Inflation: Inflation occurs when prices of goods generally go up, and the purchasing power of money decreases. For instance, if the inflation rate is 7% per year, a product that cost Rs. 100 in the previous year would now cost Rs. 107.
Interim Budget: An Interim Budget is essentially a provisional budget presented when the current government's term is set to run its course and general elections are scheduled. It is not a full-fledged budget, but rather a temporary measure to guarantee that the government runs smoothly until a new government is formed.
Macro-Economic: Macro-economic studies big-picture trends in the economy, such as inflation, growth rate, price levels, GDP, national income, and changes in unemployment.
Micro-Economic: Micro-economics looks at the decisions made by individuals and businesses regarding the use of limited resources. It influences the supply and demand for goods, affecting prices in the market.
Minimum Alternate Tax (MAT): MAT is a way for the government to ensure that companies showing very low or zero income still pay a minimum amount of tax based on their book profits.
Monetary Policy: Monetary Policy is the plan made by the monetary authority, usually the RBI, to control the amount of money circulating in the economy. It aims to manage the demand and supply of money.
Net Domestic Product (NDP): NDP is the measure of a country's economic output in a year, considering wear and tear on capital goods. It is like GDP minus the depreciation of the country's machinery and equipment.
Non-plan Expenditure: Any government expense that is not part of a specific plan, like a 5-year plan. Examples include interest payments, grants, and government employees' salaries.
Outcome of Budget: This is like a report card on how well government departments managed their expenses in the last budget. It shows the success of government programs and how money was used.
Plan Expenditure: Plan expenditure is the money the government plans to spend on various programs and projects. This includes the costs associated with the Five-Year Plans of the Central Government.
Primary Deficit: Primary Deficit is the difference between Fiscal Deficit and the interest payments on past borrowings by the government. In simple terms, it is the gap between what the government spends and the interest it pays on previous loans.
Public Account: Public Provident Fund and National Pension Scheme are the example of Public Account. The government acts as a banker, keeping your money safe and paying you back with assured interest after a certain time.
Re-appropriations: Appropriation means setting aside money for a specific purpose. Re-appropriation is moving approved money from one department to another.
Resources: Resources in the economy are the things used to make goods or services. They can be human resources (like labour) and non-human resources (like money, machines, land, and technology).
Revenue Budget: In the context of the Union Budget, Revenue Budget is the estimated amount needed for the country's growth, development, and infrastructure.
Revenue Deficit: Revenue Deficit occurs when the government's spending on everyday needs exceeds its income. This means the government does not have enough money to cover its daily operations.
Revised Estimates: This is a mid-year review of expected expenses for the rest of the year, based on what has happened in the first half. It helps to adjust plans if needed.
Subvention: Subvention is when the government provides financial support or grants to specific sectors. For example, the government might ask banks to give loans to farmers at lower interest rates.
Treasury Bills: Whenever the nation's government enters financial markets in order to raise funds, it uses two types of debt instruments, including treasury bills and government bonds. Treasury bills are presented by the nation's government when it requires funds for a short period of time.
The central government is the sole issuer of these treasury bills, and market trends decide their interest rates. The maximum maturity period for Treasury notes, or T-bills, is 364 days.
Union Budget: Article 112 of the Indian Constitution establishes that the Union Budget is a statement of the government's estimated receipts and expenditures for a particular year. Every year, the government talks about how it will use money in the Union Budget. The finance minister is the one who tells us the plan for taxes and spending.
Vote-on-Account: The government asks permission from Parliament to spend money for a part of the year. It is like getting the green light for the budget plans. Votes on Account are advance grants to the government from the Consolidated Fund of India for short-term expenditures until the beginning of a new financial year, in accordance with Article 115 of the Indian Constitution.
Due to the fact that Parliament cannot vote the entire budget before the financial year begins, the Government must be able to manage the country's administration with enough funds at its disposal.
As a result, a specific provision has been established for "Vote on Account," in which the Government obtains a vote from Parliament for a sum adequate to cover expenditure on various items for a certain part of the year. In general, the Vote on Account is taken for only two months. However, during an election year or when the main Demands and Appropriation Bill are expected to take longer than two months, the Vote on Account may be extended beyond two months.
Zero-Based Budgeting: Zero-based budgeting is a method where every expense for a new period is justified. Instead of just adjusting last year's budget, each expense must be approved and justified for the new period.
Common Terminology Used in Union Budget Indian Union Budget Economic Terms Budget Jargon Fiscal Policy GDP Finance Minister Fiscal Year Customs Duty Monetary Policy GST Inflation Treasury Bills Union Budget Terms Zero-Based Budgeting